Posted in Finance, Accounting and Economics Terms, Total Reads: 314
Definition: Split Block Pricing
Split block pricing is a strategy in which large orders are divided into small orders. Each small order is independent and can fetch different price. Due to Split Block Pricing, overall gains are more for the dealer.
For example: A trader wants to sell the 1,000 call options of company to 2 buyers Buyer 1 wants to buy the 600 options at the rate of 5 each & another one want to buy the 400 options at the rate of 5.1 per option. In that case, the order would be split in 2 different blocks of the 600 contracts & 400 contracts respectively, each of them representing 100 shares, In that case, the selling trader will receive the total proceeds of 5,04,000 calculated as 600 x 5 x 100 + 400 x 5.1 x 100. So, the price per option will be 5.04.
So, basically split block pricing is a practice of breaking a large order of buying or selling the securities into some smaller orders which can be traded at different prices as explained in the above example.